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Where to Stash Your Savings When Cash Management Account Rates Take a Dive

March 11, 2020
Banking, Banking News
Cash Management Interest Rates Dive After Fed Rate Cut
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The coronavirus situation isn’t just disrupting 2020 travel plans; it’s also affecting account balances. In response to the threat that the growing outbreak poses to economic activity, the Federal Reserve dropped its benchmark interest rate for the U.S. by half a percentage point on March 3.

While the long-term effects on financial products remain to be seen, cash management accounts were immediately affected by the dip. Multiple cash management account providers have decreased their annual percentage yields by 0.50% in the past week.

Here’s what to do if you want other places to keep your savings, especially because more drops may be coming.

» Want more info? Read NerdWallet’s guide to cash management accounts

Alternative places to put your money

With the average savings rate at brick-and-mortar banks at 0.09%, cash management accounts — which are offered by non-bank financial service providers like brokerage and investment firms — are still offering solid rates, mostly between 1.00% and 2.00% APY. High-yield savings accounts are offering similar rates.

But because cash management accounts seem to be more susceptible to rate changes from the Federal Reserve, it’s worthwhile to consider some additional options. The rates on some other products have remained steady — for now. Interest rates on certificates of deposit, for example, haven’t changed as dramatically since the Fed dropped its rate.

“Because CDs have a limited ability [for customers] to withdraw their cash,” says Dan Tripp, a San Francisco-based certified financial planner, “banks must incentivize consumers with higher rates to entice them to purchase CDs over regular interest-bearing accounts, which are much more liquid.”

Those higher rates are locked in at the start of a CD term, which means consumers know the rate they’ll receive on their cash. For the highest rates, consider putting your money into a high-yield CD.

Or, if you still want to have easy access to your cash, the interest rates for high-yield online savings accounts haven’t fallen as much as those for cash management accounts since the Fed rate drop. However, interest rates on some have already dropped, and more will likely follow soon.

Three of NerdWallet’s favorite high-yield savings accounts

Marcus by Goldman Sachs

at Marcus by Goldman Sachs,

Member, FDIC

NerdWallet bank rating:
4.0 NerdWallet rating
NerdWallet bank rating:
4.0 NerdWallet rating
NerdWallet bank rating:
5.0 NerdWallet rating


APY

1.05% APY (annual percentage yield) as of 6/16/2020





Monthly fees

$0





Bonus features

Excellent CD options



APY

1.05%







Monthly fees

$0





Bonus features

Large ATM network



APY

1.01%







Monthly fees

$0





Bonus features

Solid CD options



See more high-yield savings accounts

With experts predicting additional Fed cuts, you may want to shop rates several times this year to see where the best rates are for you as the situation evolves.

For easy access to cash, Tripp also recommends money market accounts and even good old checking and savings accounts.

» More from NerdWallet: Best money market accounts

Brace for further rate cuts ahead

The coronavirus outbreak has created anxiety among consumers, businesses and governments, and the stock market is seeing some of its biggest single-day percentage declines since the 2008 recession.

“The coronavirus was a black swan event,” says Ryan Sweet, director of real-time economics with Moody’s Analytics, using a finance term for something unpredictable with widespread and serious consequences. “The coronavirus is … disrupting the global supply chain,” he adds. “[It] has been disruptive to the economy, and tourism and small businesses are especially feeling the pain.”

The Fed plans to cut rates again next week, Sweet says, and he thinks that the rate will head closer to zero, which may affect the interest rates on a number of financial products.

“It hurts savers when you have low interest rates,” he said, “but if the Fed doesn’t respond aggressively, then there is greater risk of falling into a recession.”

Regardless of the world economy, consumers can make sure their cash savings are somewhere stable and easy to access. Evaluate your options to decide what kind of accounts work best for you.

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